Pub. 2 2020 Issue 6

11 nebraska society of cpas W W W . N E S C P A . O R G Alexander J. “Alex”Wolf is a shareholder in Koley Jessen’s Estate, Succession, and Tax Department and is the president of the firm. Wolf’s practice focuses extensively on estate planning and estate administration, business succession planning, and organizational/ tax planning for closely held businesses and nonprofit entities. He can be reached at alexander.wolf@koleyjessen.com. Anthony P. DeLuca is a senior associate in Koley Jessen’s Estate, Succession, and Tax Department. DeLuca’s practice focuses extensively on post-death estate and trust administration where he counsels trustees and personal representatives on a variety of matters. DeLuca also provides proactive, comprehensive estate planning services ranging from basic estate plans to more complex wealth transfer planning and business succession planning. He can be reached at anthony.deluca@koleyjessen.com. Nicholas W. “Nick” O'Brien is an associate in Koley Jessen’s Estate, Succession, and Tax Department. He provides services ranging from basic estate planning, business planning services, and trust and estate administration to wealth transfer techniques and counseling clients on charitable planning matters. He can be reached at nick.obrien@koleyjessen.com . 1 Neb. Laws. 2020, LB 808; originally introduced as LB 902, but later amended into LB 808. 2 But see Ariz. Rev. Stat. Ann. § 14-10819; Del. Code Ann. tit. 12, § 3528; N.H. Rev. Stat. Ann. § 564-B:4-419; Nev. Rev. Stat. § 163.556; S.D. Codified Laws §§ 55-2-15 to 55-2-21; Tenn. Code Ann. § 35-15-816(b)(27); W.S. 4-10-816(a)(xxviii), (b); N.H. Rev. Stat. Ann. § 564-B:4-419. 3 See Neb. Laws. 2020, LB 808 § 21 4 The authors note that caution should be exercised when modifying beneficial interests or adding or eliminating general powers of appointment as there can be unintended tax consequences. 5 Cerf. v. Commissioner, 141 F.2d 564 (3d Cir. 1944) (holding that a beneficiary’s consent to a trust amendment eliminating the beneficiary’s income interest constituted a taxable gift when the amendment could not be completed without the beneficiary’s consent); see alsoTreas. Reg. §§ 25.2514-3(a) and 25.2514-3(c)(4). 6 See I.R.C. § 2038. 7 See I.R.C. §§ 2039, 2041, and 2042. 8 See, e.g., Treas. Reg. § 26.2601-1(b)(4)(i)(D) and Treas. Reg. § 26.2601-1(b)(1). rights (e.g., accelerating or delaying distributions or eliminating mandatory income distributions), or (vii) add or eliminate powers of appointment. 4 Tax Considerations & Limitations Prior to decanting, a fiduciary should consider whether an exercise of the power may result in adverse consequences to the trust, its settlor, or its beneficiaries. While decanting will generally have no income tax consequences, decanting may cause meaningful gift, estate, and generation-skipping transfer tax consequences. For example, decanting may cause a taxable gift if decanting results in a shift in beneficial interest of a trust’s beneficiary. 5 Further, decanting may trigger estate inclusion if a settlor is involved in the decanting in a way that evidences implied control over the trust assets. 6 Other parties to the trust may suffer negative estate tax consequences if such parties gain the ability to exercise powers includable in their estates as a result of the decanting. 7 Particular caution should be exercised when a proposed decanting involves a generation-skipping transfer tax-exempt trust as decanting can, in certain instances, cause the trust to lose a portion or all of its generation-skipping transfer tax exemption. 8 While the UTDA provides tax and estate planning practitioners— and the fiduciaries they represent—with increased f lexibility to modify irrevocable trusts, the potential tax consequences of decanting necessitate careful, proactive consideration. t Decanting is a mechanism for irrevocable trust modification whereby the trustee can ‘ pour ’ the assets of an ill-fitting, inflexible, or otherwise deficient trust into a ‘ new ’ trust with modified or improved terms intended to better suit the needs of the involved parties. BUILD YOUR CAREER HERE. We ’ re Hiring. Come see what all the noise is about. In a collaborative atmosphere of expertise and knowledge sharing With a team of professionals who value innovation, intelligence and integrity Support in finding your right work/life balance fzacpa.com 402.496.9100